Indian Markets are expected to open with a negative bias tracking negative opening in the SGX Nifty which is trading lower by ~0.6%. Most of the Asian markets too are trading in the negative territory.

US markets fell on Monday concerned by the release of a report from the Labor Department on Friday which showed that U.S. employment rose by much less than expected in the month of December. The report said non-farm payroll employment rose by 74,000 jobs in December as compared to economist estimates for an increase of about 200,000 jobs. Remarks from Atlanta Federal Reserve President Dennis Lockhart, that he would support a continued reduction in stimulus also added to the selling pressure in the markets. However, European markets ended in the green on hopes that the pace of stimulus tapering might be slower than expected due to weaker than expected US jobs report posted on Friday.

Meanwhile the Indian markets surged on Monday on hopes that the Federal Reserve will not accelerate tapering due to weak U.S. jobs data reported for December.

Markets Today

The trend deciding level for the day is 21,051 / 6,250 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,252 - 21,370 / 6,311 - 6,349 levels. However, if NIFTY trades below 21,051 / 6,250 levels for the first half-an-hour of trade then it may correct 20,933 - 20,733 / 6,21 2 - 6,152 levels.

CPI Inflation eases to 9.8% during December 2013 as vegetable prices cool off

The combined (rural + urban) Consumer Price Index (CPI) inflation came in at 9.87% during December 2013 lower than market expectations of 10.1%. The moderation from 11.16% in November 2013 can be attributed to the easing of vegetable prices. Inflation in food, beverages and tobacco articles (which accounts for almost 50% weightage in the index) moderated to 11.97% as against 14.45% in the previous month as vegetable prices eased substantially during the month on arrival of new crop in the market. Vegetable inflation has come off to 38.76% (about 18% mom) in December 2013 as compared to 61.07% during November 2013. However on the flip side, inflation in cereal and pulses as well as that in protein-rich items has in fact inched upwards. Fuel inflation marginally eased to 6.98% during the month as compared to 7.0% in November 2013.

We believe that WPI inflation is likely to range between 6.8-7.2% during December 2013, lower than 7.5% reported in November 2013. With moderation in food inflation bringing respite from elevated headline inflation prints, we expect that the RBI to hold monetary policy rates during its January 28 policy review in view of sluggish demand conditions in the economy. We believe that an easing bias for policy seems unlikely in 1QCY2014 itself until core CPI inflation which has remained sticky at 8.0% for three straight months now recedes and we inflation expectations are anchored as these factors are also likely to determine RBI's stance.

Tata Steel reported production and sales volume numbers for 3QFY2014

Tata Steel reported its 3QFY2014 production and sales volume numbers for the Indian operations. The saleable steel production grew 3.7% yoy to 2.1 6mn tonnes whereas the saleable steel sales volumes grew by 9.4% yoy to 2.06mn tonnes (slightly below our estimates of 2.15mn tonnes). However we would not change our estimates till the company reports its 3QFY2014 results and until then we maintain our estimates and our Buy recommendation on the stock with a target price of Rs.461.

Ranbaxy Labs- USFDA gets 483's for its Toansa plant

Ranbaxy received the form 483 with certain observations as a result of the recent US FDA inspection at its API plant at Toansa, Punjab, India. According to the Management, it's assessing the observations, and will respond to the US FDA in accordance with the agency's procedure to resolve the concerns at the earliest. While the Management has not indicated, the plant is said to manufacture around 70-75% of its API requirements.

An FDA Form 483 is issued to firm management at the conclusion of an inspection when an investigator(s) has observed any conditions that in their judgment may constitute violations of the Food Drug and Cosmetic (FD&C) Act and related Acts. The FDA Form 483 notifies the company's management of objectionable conditions. At the conclusion of an inspection, the FDA Form 483 is presented and discussed with the company's senior management. Companies are encouraged to respond to the FDA Form 483 in writing with their corrective action plan and then implement that corrective action plans expeditiously, which otherwise could lead to an warning letter and the import alert.

Ranbaxy Lab's other key facilities in India, i.e at Ponta Sahib (Himachal Pradesh) and Dewas (Madhya Pradesh), have been under an US import alert since 2008. During the 2QCY2013, its other key facility Mohali also came under USFDA import alert. With this plant, also under scanner, it would have impact on the operations of the company in US, unless it can rectify and come out of 483's. We are Neutral on the stock.

Bharat Forge divests stake in the China JV

Bharat Forge (BHFC) has divested its stake in the China JV, FAW Bharat Forge (Changchun) Company to its joint venture partner, China FAW Corporation. BHFC which held 51.85% stake in the JV through its subsidiary in Hong Kong, Bharat Forge Hongkong has divested the stake for a consideration of Rs.175cr. According to a release by the company, BHFC has invested around Rs.178cr in the JV since its inception in 2006. The China JV of the company has been incurring losses over the last eight quarters primarily due to sluggish demand for commercial vehicles in the region. The JV recorded revenues of Rs.558cr in CY2012; however on the bottom-line front it registered a loss of Rs.64cr. The JV has been in the red even in 9MCY2013 and has posted a loss of Rs.25cr at the PBT level. We see the stake sale announcement as positive for the company as it is expected to improve company's profitability and also the cash flow on a consolidated basis. We expect the cash inflow from the stake sale to be utilized towards deleveraging the balance sheet (consolidated net debt: equity stood at 0.6x in FY2013). At the CMP the stock is trading at 15.5x FY2015E earnings. We maintain our Neutral rating on the stock.

Result Review

Exide Industries (CMP: Rs.105/ TP: -/ Upside: -)

Exide IndustriesRs. (EXID) 3QFY2014 results significantly missed our as well as consensus estimates on the top-line and bottom-line front. The company posted disappointing results led by sharp decline in the top-line amid slowdown in the automotive and the industrial battery segments and also due to higher competition. The top-line declined by 10.9% yoy (8.9% qoq) to Rs.1,304cr, lower than our expectations of Rs.1,500cr, largely due to the slowdown in the automobile and industrial battery segments. While in the automotive space, demand in the OEM as well as replacement battery segments remained subdued, within the industrial battery space, demand continues to remain sluggish in the inverter, telecom and infrastructure battery segments. EBITDA margins deteriorated to 10.9% (down 312bp qoq), lower than our expectations of 14.5%, primarily on account of the decline in the top-line. While raw-material cost as a percentage of sales remained stable sequentially, other expenditure as a percentage of sales jumped sharply by 260bp during the quarter. Consequently, operating profit declined 13.4% yoy (29.2% qoq) to Rs.143cr. Led by a weak operating performance, net profit declined 25.5% yoy (34.7% qoq) to Rs.78cr, lower than our estimates of Rs.134cr. We would definitely revise our estimates downwards post the disappointing 3QFY2014 results, however, we would like to seek more clarity from the management on the volume performance during the quarter. We recommend a Neutral rating on the stock.